State and nation look to spark new business growth

Published 10:07 pm, Thursday, December 20, 2012

As the nation focuses on building new businesses and jobs, the U.S. Small Business Administration is trying to recruit venture capitalists to help early stage companies stay in business.

This week, the SBA announced it is recruiting more companies for round two of its Early Stage Innovation Fund program. The SBA will guarantee up to $50 million of funds to managers who are licensed by the program and then find and invest in companies looking to raise between $1 million and $4 million as part of an expansion.

This realm of business financing is often called the "valley of death," the SBA and others said, because businesses in this stage have a tough time attracting financial backing.

More Information

For information on SBA's new program visit:
www.sba.gov/inv/earlystage
For information on Connecticut Innovation programs:
www.ctinnovations.com

So far, six fund managers of 33 applicants who applied last year are in the process of getting the SBA license, said SBA spokesman Dennis Byrne.

"We have to be careful and selective," he said. "We're always nervous... because taxpayer dollars are on the line."

The fund managers will risk capital raised privately, but if a company fails, the SBA funds would cover investor losses. So Byrne said it's important to find managers who have strong track records.

In Connecticut, the "valley of death" starts at around $500,000, said Matt Nemerson, president and chief executive officer of the Connecticut Technology Council, a trade association that works to help develop the state's technology sector.

He said CTC looked at the SBA program, and while it's a good one, the state already has a government-backed entity that's working in this area, Connecticut Innovations.

He said Connecticut Innovations provides seed capital and connections to venture capital firms in the state.

While raising capital is a struggle for companies bringing forward new ideas, he said the real struggle for Connecticut is getting firms that were born here to stay here.

He said investors will move firms to other parts of the country to be nearer active technology business centers where firms can attract talent and support. Silicon Valley in California and Boston are two of those areas, he said.

The move to other states is not just limited to new business, either, he said. Connecticut is home to a vibrant venture capital industry, but over the years, firms in the state have opened satellite offices in states like Arizona and Texas, where entrepreneurial growth has outpaced the growth here.

He said the ultimate challenge is to keep Connecticut's young firms here, and the state is working on programs of its own to strengthen the business ecosystem.

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For managers interested in the SBA program, applications are due in March.